Meta loses its ‘purchase’ rating from Morgan Stanley after blowing past spending forecasts and casting doubt on strong cash flow in 2023

• Morgan Stanley downgraded Meta stock to equal-weight from chubby and slashed its worth purpose to $105 from $205.
• Analysts cited Meta’s forecast for capital spending, which is ready to weigh on its cash flow. 
• “And in the meantime, we see earnings power staying depressed,” the monetary establishment’s phrase acknowledged. 

Morgan Stanley downgraded Meta stock Thursday, a day after Facebook’s guardian agency reported a decline in revenue for the second straight quarter and equipped capital-spending steering that turned heads on Wall Street. 

Analysts decrease their rating on the stock to equal-weight from chubby and slashed their worth purpose to $105 from $205.

Morgan Stanley wrote in a phrase that whereas the monetary establishment wouldn’t want to make rankings modifications in a reactionary model, “we think META’s latest results and forward capex guidance are thesis changing and likely to weigh on the shares for some period…until the market can feel confident in execution and return on invested capital from these outsized investments.”

In particular, analysts pointed to Meta’s steering for $69 billion in capital expenditures over two years, saying that signifies “structurally higher capital intensity.” Even the low end of Meta’s spending outlook for 2023 alone was $7 billion elevated than anticipated, they added.

The giant spending wave is being pushed by investments in artificial intelligence-driven information amenities, as Meta scrambles to adapt to a model new social-media landscapes that’s now dominated by short-form video, primarily based on the phrase.

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Shares of Meta fell as lots as 25% Thursday, and erased roughly $65 billion from the company’s market capitalization. By midday, the stock was down 22%, shopping for and promoting at about $101.

Meta, beforehand typically referred to as Facebook, pivoted away from a highlight on its flagship social media web site in the direction of giant spending on the metaverse to extra delve into the Web3 space in 2021. 

But optimism from management surrounding the lack of layoffs and insistence on the future of Reality Labs, amongst totally different parts, was not ample to offset disappointing steering for subsequent quarter and yr ahead, primarily based on a separate phrase Thursday from strategists at JPMorgan. 

Eventually, the upside from Meta’s investments will current up in the company’s quarterly research, and there are early indicators that Reels — Meta’s reply to TikTok — is displaying some enchancment, Morgan Stanley acknowledged. But options in revenue and engagement won’t current very important advances until correctly into 2023.

“And in the meantime, we see earnings power staying depressed,” the phrase acknowledged.